Commerce Commission releases due diligence guidance
From 1 October 2021, a creditor's directors and senior managers will need to exercise due diligence to ensure that the creditor complies with its duties and obligations under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) – or face personal liability. Consequences for directors and senior managers may include a pecuniary penalty of up to $200,000 and/or court ordered damages or compensation.
Yesterday, the Commerce Commission released its finalised guidance on the new duty, following a consultation process this year. The duty is based on the size and nature of the lender's business, the position of the director or senior manager and the nature of their responsibilities.
However, the Commission's guidance outlines that directors and senior managers will be expected to:
- Understand obligations: Understand (and keep informed of) the creditor's obligations under the CCCFA and associated regulations.
- Have systems and procedures: Take reasonable steps to ensure the creditor has procedures (or a series of procedures) in place to ensure compliance with the CCCFA. In addition:
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ensuring that the procedures are fit for purpose;
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ensuring that the manager(s) responsible for implementing the procedures will report on the implementation and ongoing performance;
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ensuring there is sufficient resource allocated to the development and implementation of these procedures; and
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understand the compliance risks associated with the procedures and have a method for identifying and mitigating those risks (ie have a review system in place).
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Require staff to follow systems and procedures: Ensure there are processes in place requiring staff to follow the procedures. In particular, ensuring staff and agents are regularly trained in how to use the procedures, having the procedures available in written form (where appropriate) and incentivising staff to follow them (for example, through the use of key performance indicators).
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Check use of systems and procedures: Take reasonable steps to ensure the creditor requires regular checks to confirm the procedures are being used appropriately and the results of those checks are reported to them. There should be:
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a mechanism available to staff and agents to report issues;
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a requirement that the use of the procedures is documented or confirmed by the staff in each case; and
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regular audits of the use of the procedures.
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Identify deficiencies: Have adequate supervision over these procedures on an ongoing basis to ensure they are working as intended and that they are resulting in compliance. There should be regular reviews and audits of the procedures against compliance with the CCCFA and changes made to the procedures where necessary. This may include review of complaints data.
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Promptly remedy deficiencies: Ensure prompt action is taken in respect of any failures. This may require setting clear requirements for reporting and timeframes for addressing and remediating issues, ensuring that the root cause of the problem is identified and fixed, and there is a procedure in place for identifying impacted borrowers.
Directors and senior managers are unable to be indemnified (by insurers or others) in respect of any pecuniary penalty imposed under the CCCFA.
Please contact us if you wish to discuss the due diligence duty and what it might mean for you. We have unparalleled CCCFA experience and expertise, and our team are true market leaders in this area.